With Office 2010, Microsoft must decide how much software it can give away online without undermining its lucrative desktop software business. If it doesn’t make the right calculation, the software maker could find itself in the same position as newspapers that gave online content away and now are struggling to replace print revenue.

That second line is almost a throwaway, written with no attribution. That means that the notion has officially entered into conventional wisdom: Local newspapers screwed up by giving away for free the content everyone used to pay to consume.

Conventional wisdom, yes. And untrue.

ADVERTISEMENT

Correcting this fundamental error is about more than just debating the past. Because this mistaken assumption is driving the debate about new business models for news.

I want to explain why I think this mistaken assumption is causing people to ask the wrong question about the future of local news. And what I think the right questions are. I want to try to reframe the discussion about business models to focus on where true opportunity and solutions might be found for journalism entrepreneurs to pursue.

First, let me address the first half of the assumption about “newspapers that gave away content.” This assumes that people once paid for journalism.

ADVERTISEMENT

The Myth of Paying for Journalism

Let’s correct that right now: When it comes to local newspapers, people never paid for journalism.

Believing that they did represents a fundamental misunderstanding of what a local newspaper was, or is. Especially when it comes to the business of a local newspaper. And it’s a tragic misreading that I hear repeated on all sides of the paid content debate, whether they’re for or against charging for news online. (The equation is a bit different for national newspapers like the New York Times or USA Today. But I’ll leave that for another time.)

Let’s review the actual business of a local newspaper, at least as it used to be. Back in February, when I was attending a Knight Digital Media Center workshop at the University of California at Berkeley, we heard a presentation from Lauren Rich Fine, a former newspaper analyst for Merrill Lynch and a presenter at Kent State University.

Fine broke down the historic revenues of newspapers. Across the industry, the money people paid to subscribe accounted for, on average, about 20 percent of a newspaper’s revenue. Classifieds, on the other hand, typically brought in 50 percent of the revenue, and 70 percent of profits on average, according to Fine.

So let’s reflect on that: The consumer was only paying about one-fifth the cost of the product. But what were they getting for that money?

Again, the mistaken notion here is that the primary product of the newspaper is journalism. That’s the conceit of journalists, but it’s also the general misinterpretation by those seeking to re-invent news from the outside.

The Consumer View

Let’s look at a newspaper not from the newsroom-centric view, which assumes the whole value is the journalism. Let’s look at the newspaper from the eyes of the consumer.

From that view, a newspaper is a product that, at least at its peak, provided about 50 different services for people. It helped people figure out where to shop. It delivered a boatload of coupons every Sunday. It helped them plan their weekend. It entertained them with comics and puzzles. It let them know what was on the school lunch menu. And along the way, it also delivered journalism.

Anyone who has worked at a newspaper long enough will tell you that what provokes more outrage from readers than anything else is messing with the comics or puzzles.

Just this week, I was eating lunch with a chief executive who had been in Silicon Valley for 30 years. Toward the end of our lunch, he said he had read the print version of my newspaper for 30 years, and still does. But he was frustrated that we now run the puzzles on a different page every day. He’s not alone. About two years ago, when my newspaper all but eliminated the features section, the outpouring of emails from readers were primarily expressing outrage that the puzzles and comics were being moved.

You can shake your head, but that’s as important a part of the newspaper for many people as the journalism is. For their monthly bill, which only represented 20 percent of revenue, consumers were getting a product that did many things, only one of which was the journalism. Did journalism have a higher social value? Certainly. But it wasn’t the core of the business. For the reader, an ad telling them about a sale or a new store might be just as important in their lives.

Losing the Community Marketplace

So if journalism isn’t the business of a newspaper, what is?

Pull back the lens. At their peak, local newspapers did two things: They created community. And they provided the local marketplace for goods and services. These services were so profitable, that they subsidized the civic good of journalism.

The reason newspapers are in trouble today is because they have lost their dominant position on both of these fronts. Classifieds have evaporated, blowing a massive hole in newspaper revenue.

People know this, yet they somehow forget that this was a completely non-journalistic function.

When it came to community, the sum of news and information in a newspaper created a shared base of knowledge, set the conversations about civic life, and provided a bond that created a sense of place. Today, as newspapers have shrunk, and as the audience has splintered, the newspaper no longer serves as community hub.

Having lost all of these things, all that is left is the journalism. And on its own, we’re discovering this is not something people will pay for.

Getting Beyond Paid Content

So the solution that’s carrying the day is to start charging for content. I don’t favor this approach, but I think it’s too late to stop the train. If paid content succeeds, local newspapers wouldn’t be getting people to pay for journalism again. They’d be getting them to pay for the first time.

Once the paid content strategy comes and goes, it’ll be time to look for other solutions. I don’t believe, as some have written, that we’ve tried everything and should simply give up. In my view, there is still enormous opportunity to create business models that support local newsrooms if journalism entrepreneurs ask the right questions:

Let’s stop asking how to get people to pay for content, because they never did.

Let’s stop asking: How do we reinvent journalism? Opportunity abounds here. The new digital tools are allowing us to create deeper, richer journalism than ever. And more people than ever are reading my journalism. Journalism is doing fine.

Instead, newsrooms need to ask:

> How do we reinvent local community on the web?

> And how do we reinvent the local marketplace online?

By no means are these puzzles solved. I don’t believe that Craigslist represents the last, best way people in a community will buy and sell things. Yelp, while growing in traffic, continues to have reputation issues with local merchants.

The discussion over paid content and tweaking the advertising model is too limited. Solve those two bigger challenges of community and the local marketplace, and you’ll create a business that will support smart, multi-platform newsrooms. These newsrooms won’t be dominant, as they were in the past. They’ll exist as part of local news ecosystem.

But create community, help people succeed in business, and you’ll find a way back to re-igniting the passion for a local news organization.

1. Free newspapers are not all “shoppers.” Some newspapers that happen to be free contain some very fine journalism. I’ve worked at several free papers (most now defunct for reasons only partly related to business), and most journalism outlets in any medium would be very lucky to have newsrooms filled with the kind of smart, tough, prolific journalists I knew there.

2. Newspapers are primarily businesses, and they always have been. When I moved from free weeklies to a paid daily, I was astonished at how many reporters and editors ignored this reality. The sooner people on the news side accept this, the sooner we all will be able to view the future of the industry clearly and factually — instead of through the idealistically distorted lens of a self-perpetuated fiction about what a newspaper is.

I’ve never seen this put so well. Several years ago, after being group editor of several newspaperes based on Geraldton in Western Australia my wife and I bought a convenience store. Soon after we started (in Wodonga, Victoria, Australia) Sunday newspapers were published for the first time for general distribution. Three new papers on the same day — and the main comment from buyers? They’d missed out the lotto results!

But a problem with the web is that so many supposedly local community sites are not for or by the community. They are mostly commercial ad-selling sites with some bits of local info which is often outdated or just wrong. It’s cheap to start real local web sites. I’ve just started one at hastings3915.info for a capital outlay of less than $100.

Even the web sites by many of the supposedly local newspapers have no real connection with the community. One local one has a local domain name, but it goes through to a site for a bigger region and much of the content is shared with the statewide site.

News is but a small part of catering for a community, and too many local papers have forgotten that is their role. Journalists on really local papers know because they know their readers; they can’t disappear back to the city.

I suspect that as ads get harder to sell the result just might be some better newspapers.

As background, I think there is too much defending the status quo and not enough curiosity about what will improve the market.

I am amazed that any business, including news, would approach a new delivery vehicle by offering their product for free first and then figuring out how to make money later or by banking on a 3rd party (e.g., advertisers) to fund it. The most sustainably profitable businesses sell and collect money directly from their consumers – they know when the product isn’t delivering or their sales tactics don’t work, and what they need to do to be more competitive.

Television and radio had no choice but the free/ad supported business model. There was no way to collect money from consumers. Now they are scrambling to re-negotiate re-transmission consent deals with cable providers to get their share of the consumer purchase pie because it has grown to be bigger than the ad revenue pie. If the guys who succeeded with the FREE/ad support model are scrambling to shift to paid, why would anyone conclude that FREE is a good model to emulate?

So you probably aren’t surprised that I disagree with your conclusion that consumers never paid for the news. But I agree with your conclusion that media value comes from its power to contribute to individuals who are community builders.

Your analysis may be correct that consumer subscriptions are not enough to cover the costs to publish the news. But consumers perceive they “pay.” Importantly, look at the reasons subscribers cancel paid subscriptions – isn’t it because they think the writing is too biased and don’t trust it any longer?

There was a time when subscriptions paid for the news and advertising was “icing on the cake.” The day the news, and media in general, became dependent upon advertising to survive financially, is the day media’s value to consumers began to erode. And this is also the time, maybe not coincidentally, that advertising’s ROI disappeared.

I agree with you that news, and media in general, have a lot to contribute to sense of community. In fact, I think news should get back to providing the service of arming individual community builders with the ammunition to galvanize community – by providing reliably unbiased, fact-based reporting. The media who position themselves a source one can trust will be paid enough by subscribers to be more selective in their choice of advertisers. Maybe then, ad ROI may resume as well.

And Katherine is mistaken in her notion that most people who cancel their subscriptions do so because of content. It’s been a while since I’ve checked these figures, but for all of my career at seven different newspapers, most of the time the biggest reason for cancellation is delivery problems. And the comic/crossword thing that Chris mentioned will get more cancellations than most things you could do in the newsroom or editorial page.

Thanks, everyone for your comments here. I wanted to address a couple of points that Katherine made:

*You wrote: “But consumers perceive they “pay.” Yes, they do think they pay. But the value of the product for them extends way beyond the journalism. As many of these other elements have been stripped away, the results has been a product of less value for them.

For the past two decades, newspapers’ response to declining circulation was to cut journalists, size of stories, and number of stories. The result is a product that’s far inferior to what it was 25 years ago. I can’t think of any industry that’s solved its problems by slashing the quality of the main product it offers.

*You wrote: “Importantly, look at the reasons subscribers cancel paid subscriptions – isn’t it because they think the writing is too biased and don’t trust it any longer?” I’ve found that, in fact, such things have little impact on readership. They do prompt a lot of comments and letters to the editors, but they rarely result in someone canceling, because that person still probably wants the comics, or the sports page, or the puzzle.

I think the main driver of circulation decreases have been massive demographics shifts. More families where both spouses work outside the home. Different familial patterns in the morning. The problem here is that in print, newspapers still deliver one product, in one format, at one time. And that product simply doesn’t fit into people’s lives anymore. That’s why circulation started falling several years before most of us had even heard of the Internet.

Also, don’t discount the fact that newspapers have been cutting unprofitable circulation for many years. The San Francisco Chronicle used to deliver the paper all over Northern California. Today, that makes no economic sense (and probably never did). But just because they stopped delivering to large parts of the state doesn’t mean those people didn’t want the print paper. It was taken from them.

Another thing I’ve noticed, especially with local news (including free alt weeklies, which are about the only kind of print newspaper I ever bother to pick up anymore) — readers consider ads to be content, too.

Seriously — the ads in alt weeklies are generally informative, relevant, and entertaining. They don’t suck as much as ads in metro dailies, national papers, or network TV or radio do. When people read alt weeklies, they look at the ads. They tear them out. They remember them. They’re useful.

Ads don’t have to suck — and when they don’t suck, they can be an important part of the content. This is true online as well as in print. That’s where alt weeklies usually fall down, BTW — their online ads typically suck.

I think it’s possible to work with advertisers to craft better, more relevant advertisements online and in print/broadcast that serve the readers better and perform better. Advertisers — especially for local news venues — are generally part of the community, too. We’ve pigeonholed and even denigrated their content value for too long, I think.

Dead on. Making money off any medium is all about intruding as cleverly as possible on a human interaction and finding a way to inject yourself into it. In other words, it’s butting into a conversation and actually being able to change the subject.

Whether you’re Google, Rupert Murdoch, or the local hardware store, there is always a way to make money from this, as long as you understand the nature of the interaction and how to make yourself a part of it.

“Content” will be monetized for the same reason it always has – people talk to each other through a variety of media, and there are smart people everywhere busy creating all kinds of interesting ways to do that, and other smart people thinking of how to butt in on those conversations and change the subject. Sometimes they’re even the same people ;-)

This is a very awkward way to have such an important discussion by thoughtful, smart people. News is a catalyst for discussion. Discussion energizes the bonds that form community. What a vast opportunity gap for newspapers to capitalize on.

I think we agree on this.

Who pays? is the issue we don’t seem to agree on and I think is at stake in the discussion going on Steve Buttry’s blog (see above) is related.

Could we at least agree that there isn’t any good existing data to tell us what consumers would pay for. There are two reasons. Most of the existing data was developed to defend the status quo. And, as most professional researchers will tell you, asking consumers to tell you what they would pay for will not yield many insights.

Couldn’t we agree that media that sells directly to their consumers has a much better sense of what consumers value for than media that goes through a 3rd party or relies on advertising for support.

And couldn’t we agree that whether news is a non-profit or for profit business, it needs funding.

And couldn’t we agree that it is a lot easier to maintain the integrity of a news product when consumers generate enough revenue that the publisher can be highly selective about advertising and what they will do for advertisers.

Finally, and this may be the real issue behind the debate of paid vs. free, could we agree that consumers are smart enough to know that you get what you pay for?

Best, Katherine Warman Kern @comradity

PS I am working on a way to overcome the awkwardness of this discussion. Would you or other commentors be interested in participating?

Mark

“How do we reinvent local community on the web? And how do we reinvent the local marketplace online?”

Both of these are worthy questions to ask, but neither of these questions implies a business model. I can easily imagine a web site that has built a great community and created a great local marketplace, but still loses money. It’s called MySpace.

I generally agree with you and your angle here. It’s a lot easier for executives to play it safe with newsroom-friendly (and likely short-sighted) strategies like charging. That said, I’m going to play devil’s advocate on a few points:

1. Not all newspaper businesses think charging online’s going to make them money. The publisher of the Arkansas Democrat-Gazette claims charging for his online product has helped him stem the circulation declines other similarly sized newspapers have seen.

2. Sure, newspapers have charged readers to cover the cost of print circulation and distribution. But servers aren’t free, and bandwidth adds up, and if you’re getting 200K uniques a day that stuff has a daily price tag in the dollars, not cents. Is it okay to charge online to cover that cost?

Mark is right that this post doesn’t provide a viable business strategy but, Chris, I don’t think you’ve pretended to have the answers.

What you’ve done is to suggest the questions the industry needs to be asking, and I think you’ve given us the right ones.

One problem the industry faces is that it has generally settled for trying to replicate what it does in print on the web, without asking what newspapers actually do.

In other words, it believed newspapers were all about stories and features with adverts next to them, so it created websites with stories and features, with adverts next to them, and assumed that would be enough.

I know things are already changing, and we shouldn’t be too pessimistic when papers like the Daily Telegraph are beginning to innovate. (See http://my.telegraph.co.uk/ – a British example because I know British papers best)

But I still wish newspapers would do more to look at what is working on the internet (and what is perhaps failing) – Facebook and Myspace, Yahoo! Answers, Flickr, successful forums from Something Awful to mumsnet, and even games (World of Warcraft is a rubbish game on its own, it works because it offers social interaction) – and looking at why they work and the lessons to be learned from them.

I fear that many people are still trying to learn lessons from why print newspapers worked so well 20 years ago.

Chris, Great post. Perhaps this is one of those times that a meme that has been ascendant will finally start to disappear.

People have never bought newspapers primarily for the news. Advertising came into newspapers when steam driven presses coincided with the growth of the mass market. “Yellow” journalism took advantage of the moraility play to gather eyeballs to sell to department stores to sell mass produced stuff.

This whole thing is only about 100 years old. Before that newspapers were many things, but I think Chris has it right when he says they build communities and enable commerce.

Unfortunately this is very far away from the celebrity journalism that started in the early 70’s when the career path became Pulitizer then TV pundit.

It’s most likely that the emerging solutions will be some version of back to the future.

David Wollstadt

About 40 years ago, I was a member of the Rockford Newspaper Guild No. 5, which went on strike against the city’s two daily newspapers, the Rockford (Ill.) Morning Star and the Rockford Register-Republic. Thanks to support from the ITU and the pressmen’s union, we shut both papers down for 70 days. I had picketing duty for two hours each day, and one of the things I did to while away the time was to take an informal survey of what passers-by missed about their daily newspapers. The responses, in no particular order, were: the comics, the classifieds, the crosswork puzzle, the grocery ads, the sale ads, the astrology column, and so on. Exactly one person said he missed “the banner headline on the front page,” and one other person said he missed “the front page news.” In short, everyone said they missed their daily newspaper, but only those two respondents missed anything that the news/editorial department contributed to the mix.

I completely agree with Chris when he very accurately points out “that the mistaken notion here is that the primary product of the newspaper is journalism.” At http://www.hometowntimes.com, we pull no punches in understanding that the community is what is important – and being responsive to the readers needs … all needs of lifestyle, awareness, humor, events, personalities, deaths, sports, etc. … are the vehicles through which any serious journalism or investigative reporting will find a home.

At hometowntimes.com, we’ve answered the question, “how does delivery of news make money?” by creating a proven, successful model that supports Chris’s hypothesis and turns the conventional wisdom (or lack thereof) and failed business model for journalism and advertising upside down. While every news organization, reporter, and journalist is out there trying to find a revenue model from delivery of the news, Hometowntimes.com has created a business model and opportunity that aggregates millions of users nationally, providing the source of revenue to build the local community franchise, and create a successful business structure for creation and distribution of relevant localized journalism co-existing side by side in an online model that accepts the notion that advertorial content is as meaningful as hard core journalism, from the local readers’ viewpoint and interest.

Steve Buttry commenting here: Something’s off-kilter here on the comments. The comments by name are not the comments I made (my comments are the ones immedieately after the onese by my name.) I presume some other people have their comments separated from their names, too.

Hey all: This conversation has been interesting, and moved in a couple different directions across a couple different blogs. I just wanted to let you know I’ve got a follow up post on all of this here:

Your opinion piece is a good example of why journalists need more education than just writing. First of all no company operating on a profit margin in the teens can afford to increase costs and eliminate 20% of its revenue. Second, you can determine revenue brought by a division but not what percentage of total profit it brings. Third a person without proper knowledge should talk to someone in the industry not a consultant with no actual experience in the industry. Fourth it is ADVERTISING not Classifieds that bring ing the revenue, classifieds is a small percentage of the total adverting revenue stream. Fifth if you cannot attach FSIs to your product and only have classified revenues coming in you cannot afford the reporters let alone make a profit so you no longer have a product or audience and no reevnue. When are so called journalist going to realize that just because they interview and expert on a subject for 30 minutes they do not become experts or even knowledgable? If they did we would go to school for for a couple of weeks instead of 16 years to get a college degree.

ADVERTISEMENT

ADVERTISEMENT

Who We Are

MediaShift is the premier destination for insight and analysis at the intersection of media and technology. The MediaShift network includes MediaShift, EducationShift, MetricShift and Idea Lab, as well as workshops and weekend hackathons, email newsletters, a weekly podcast and a series of DigitalEd online trainings.